Published: 27/04/2022 By ECAPSterling has dropped like a stone in the past couple of trading sessions. The GBPUSD pair made a march towards the 1.26 mark yesterday (a 21-month low), extending its sell-off to more than 3% since markets opened on Friday. A mounting cost of living crisis in the UK, and a surprising dovish turn from the Bank of England despite the inflation overshoot, is not providing a particularly attractive proposition to investors at present. There’s no real macroeconomic data of note out of the UK this week, so markets will likely already have one eye on the MPC’s policy announcement next week. While another 25 basis point rate hike is widely expected, the big uncertainty surrounds the bank’s view on the possible pace for additional hikes beyond next week’s meeting. This is shaping up to be a key event risk for sterling.
Among the major currencies, the euro fell below the 1.07 mark, ending London trading around the lowest level it has traded in the past five years. A confluence of factors have conspired against the common currency in the past few weeks. Risk sentiment has worsened, the war in Ukraine continues to rumble on with no signs of a resolution and the European Central Bank has largely stuck by its dovish rhetoric in recent official communications. ECB President Lagarde will be speaking again in Hamburg this afternoon, with markets set to watch closely for any comments on monetary policy that could spark some life into the euro. Until we see that long-awaited hawkish pivot from Lagarde, the common currency may find gains hard to come by.